Required: a. What are the operating cash flows in each year? b. What are the total cash flows in each year? c. Assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?
Required: a. What are the operating cash flows in each year? b. What are the total cash flows in each year? c. Assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...
Related questions
Question
![Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $50,000 and will be depreciated straight-
line over 3 years. It will be sold for scrap metal after 5 years for $12,500. The grill will have no effect on revenues but will save
Johnny's $25,000 in energy expenses. The tax rate is 30%.
Required:
a. What are the operating cash flows in each year?
b. What are the total cash flows in each year?
c. Assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
What are the total cash flows in each year? (Negative amounts should be indicated with a minus sign. Do not round
intermediate calculations. Round your answers to 2 decimal places.)
Time
Total Cash Flows
1
2
< Required A
Required C >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5dcd86bd-34ae-402f-821d-33db85e36c29%2F54a4e111-f030-46f7-8858-806b5c693ee8%2Fqhndvd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $50,000 and will be depreciated straight-
line over 3 years. It will be sold for scrap metal after 5 years for $12,500. The grill will have no effect on revenues but will save
Johnny's $25,000 in energy expenses. The tax rate is 30%.
Required:
a. What are the operating cash flows in each year?
b. What are the total cash flows in each year?
c. Assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
What are the total cash flows in each year? (Negative amounts should be indicated with a minus sign. Do not round
intermediate calculations. Round your answers to 2 decimal places.)
Time
Total Cash Flows
1
2
< Required A
Required C >
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
Solution:-
Calculation of operating cash flow and total cash flows 1 to 5 years
Particulars | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Annual savings | $25,000.00 | $25,000.00 | $25,000.00 | $25,000.00 | $25,000.00 |
Less: depreciation | $16,666.67 | $16,666.67 | $16,666.67 | ||
Saving before tax | $8,333.33 | $8,333.33 | $8,333.33 | $25,000.00 | $25,000.00 |
Less: tax 30% | $2,450.00 | $2,450.00 | $2,450.00 | $7,500.00 | $7,500.00 |
Saving after tax | $5,883.33 | $5,883.33 | $5,883.33 | $17,500.00 | $17,500.00 |
Add: depreciation | $16,666.67 | $16,666.67 | $16,666.67 | ||
(a) Operating CF | $22,500.00 | $22,500.00 | $22,500.00 | $17,500.00 | $17,500.00 |
After tax salvage | $8,750.00 | ||||
(b) Total cash flow | $22,500.00 | $22,500.00 | $22,500.00 | $17,500.00 | $26,250.00 |
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning